What is Nano’s Block-Lattice Architecture? Complete Beginner’s Guide

Nano is a low-latency cryptocurrency designed as a feeless payments network that is built using an innovative block-lattice architecture. Formerly known as Raiblocks, Nano users’ chain of transactions are actually their own blockchain rather than functioning as a prototypical crypto public address.

The direct benefits of the block-lattice structure are instant transactions, low fees, and high processing capacity. Using a Delegated Proof of Stake (DPoS) consensus, Nano achieves rapid finality and a drastically smaller blockchain size compared to other proof-of-work chains.

Conversely, the structure of the block-lattice system within the context of the network design offers little incentive for participation, and the network remains highly centralized.

Background on Nano

Nano was founded by Colin LeMahieu in 2015 with the release of the white paper as an improvement over Bitcoin regarding P2P digital payments. Designed as a highly scalable network, Nano’s narrative is one of a currency and P2P payments network. Nano is tailored for consumer and merchant adoption as well as micropayments as its primary functions.

Nano’s BrainBlocks implementation is a testament to its design as a consumer payments network and digital currency for both online and in-store point-of-sale transactions.

Despite the wide selection of wallets, tools, and practical applications of Nano as a payment network, its adoption is struggling to garner adequate support to be considered such. Nano’s 24-hour transaction volume — according to their network metrics — is only $2.8 million, at the time of this writing. For context, Bitcoin’s 24-hour adjusted transaction volume is just under $2 billion, and it is more of a high-value settlement layer than payment network. Moreover, VISA — a legacy payment network — processes more than 150 million transactions per day.

Irrespective of its current adoption as a payment network, Nano’s no fee, scalable, and instant transactions are enabled explicitly by its block-lattice architecture.

The Block-Lattice

The Nano white paper identifies that there are three fundamental components of a currency that need to be satisfied for it to function effectively:

Easy transferability

Non-Reversible

Limited or no fees

Nano achieves these three properties by overcoming the scalability problem endemic with on-chain scaling debates (i.e., block size) by making each account its own blockchain, part of a blockchain-lattice. The block-lattice design choice has important consequences, including that the concept of a shared, distributed ledger does not apply. Instead, the network is a group of independent non-shared blockchains where nodes use signature checking to agree that only account chain owners can update the state of their respective chain. Users can subsequently update the state of their ledgers asynchronously, allowing for near-instant transactions with minimal overhead.

Image Credit – Nano Whitepaper

The Nano genesis account chain initially contained all of the NANO coins. The genesis balance is fixed (following 60.8 percent of the supply intentionally destroyed in 2017), and NANO is sent to account chains through send transactions that are registered on the genesis account chain. The initial genesis account balance can never be exceeded by the sum of all of the account chains in the network.

The send transaction mentioned earlier is part of the two-part transaction system of Nano. Every transaction requires a send transaction and a receive transaction. Send transactions deduct the corresponding balance from the sender’s account chain an encodes it into the latest block of that chain. This is a crucial component of the system because nodes only need to store the latest block for each account chain without sacrificing validation of correctness. The receive transaction adds the corresponding balance to the receiver’s account chain and similarly encodes the balance into the block.

Block Lattice Visualization, Image from Hackernoon

Nano identifies several advantages to the two-phase transaction system including sequencing incoming transfers that are asynchronous, enabling small transactions that can fit in UDP packets, improving ledger pruning, and isolating settled from unsettled transactions.

The latency of the network and asynchronous nature of transactions means there is no standard process for agreeing on which transaction arrived first if an account chain receives multiple transactions from different accounts. Nano approaches this by employing a design-time agreement where the receiving account chain retains control over deciding which incoming transaction arrived first. Moreover, transactions are differentiated as either settled or non-settled. Settled means a receive block has been generated and the balance encoded while non-settled means the balance of the receiver has not been updated yet.

Senders of transactions need to create a send block, which is immutable after confirmation. Funds are deducted from the account chain balance once the send block is broadcast to the network and are considered pending until the receiving account chain creates a receive block for the transaction. Once a receive block is generated, the transaction is settled and the amount added to the receiver’s balance. A transaction is considered verified once if the block does not exist in the account chain already (either send or receive), the account owner signs the transaction, the previous block is the head block of the account chain, and the computed hash meets the PoW requirement.

Nano employs proof-of-work (PoW) in a manner similar to Adam Back’s Hashcash design. However, PoW is used in Nano solely to mitigate spam and not for reaching consensus.

Image Credit – Nano Whitepaper

Account chains are initiated by sending an open transaction to the genesis account chain. Balances are maintained by measuring the balances of the send block and the preceding block. Subsequently, high volumes of blocks are easily downloaded. The ledger’s storage requirements are significantly less than other cryptocurrencies and, as a result, the hardware requirements for nodes are minimal.

Nano is actually based on a Directed Acyclic Graph (DAG) where consensus using DPoS is reached via a balance-weighted vote on conflicting transactions. Account-chain holders are assigned a representative as part of the DPoS voting system on conflicting transactions. Due to this design, it may seem easy to launch a Sybil attack where a malicious entity obtains multiple account chains. However, voting is balance-weighted, meaning that the costs of performing a Sybil attack directly correlate to the total stake in the network (i.e., the sum of account balances) rather than the number of account chains under control.

Image Credit – Nano Whitepaper

In summary, the block-lattice structure enables a near-instant transaction, zero fees, and high scalability. The novel architecture is impressive and has some clear advantages; however, the lack of fees is part of a broader incentive design problem that likely is hindering its adoption.

Achieving a Scalable Payments Network

Nano’s block-lattice architecture affords it a unique processing ability for consumer/merchant payments either online or at point-of-sale. Further, Nano is well-suited for the future materialization of micropayments. Despite its promise, Nano suffers from a notable incentive problem.

Since open send transactions pull NANO directly from the genesis account chain, it is the only means of deriving NANO from the network. Therefore, the lack of fees means there is no incentive for on-chain activity, such as mining in PoW or staking in PoS.

Representative nodes in the consensus system do not receive rewards for their work either, so their only incentive to secure the network is through a preference for some other reason, perhaps ideological or because they have a large stake in NANO and want the price to increase eventually.

Additionally, decentralization would provide better guarantees of immutability and censorship-resistance, but approximately 94 percent of voting balance-weight is controlled by 1 percent of the account chains.

With an incentive design driven primarily by utility as a P2P payment system, Nano needs to compete with and surpass legacy payment systems without a viable and sustainable incentive mechanism for participating in the network. PoW as a consensus mechanism for securing a blockchain is the only practically proven sustainable model for cryptocurrencies so far. PoW is an elegant form of money issuance that is based on free-market competition and involves a real-world cost (computation via electricity) to create the currency (i.e., Bitcoin). In Nano, money issuance is tied directly to the popularity of the network as a means of payment (because it relies on utility as its incentive design), since all newly issued NANO is derived from the genesis account with open send transactions.

Removing the incentive of participants who secure the network entirely is uncertain territory.

Conclusion

The narrative of Nano as a P2P payment network and digital currency is supported by the impressive capabilities that its block-lattice structure confer. However, its struggle in adoption as a payment medium is compounded by a lack of on-chain incentive structure for participants in the network resulting from the block-lattice design.

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